Friday, August 3, 2007

Over the past decade Texas has aggressively privatized state government social services, a policy that was supposed to save taxpayers a fortune. Instead, the state has sunk hundreds of millions of dollars into privatization boondoggles that have squandered tax dollars and harmed those Texans who need assistance most.

Reinlie: Texas blunders through privatization

Lauren Reinlie, TEXANS FOR PUBLIC JUSTICEPublished in Austin American-StatesmanFriday, August 03, 2007

Over the past decade Texas has aggressively privatized state government social services, a policy that was supposed to save taxpayers a fortune. Instead, the state has sunk hundreds of millions of dollars into privatization boondoggles that have squandered tax dollars and harmed those Texans who need assistance most.

Beneficiaries of this waste include private contractors as well as the lobbyists who helped sell state officials on these privatization schemes. These interests arguably are the least deserving welfare recipients in Texas. A recent Texans For Public Justice study found that 13 state contractors involved in just four privatization schemes spent up to $11 million lobbying Texas state officials over the past decade. Yet the stakes behind this lobby push were much larger. The state of Texas has spent more than $2 billion on these four privatization schemes.

A corrosive influence on these privatization contracts is the "revolving-door" between the public and private sectors, which frequently blurs the distinction between contractors, lobbyists and state officials in Texas. Too often officials craft legislation that fails to safeguard taxpayer interests, even as it lines their pockets or those of their past or future employers.

Consider the 2003 law that promised to privatize $1 billion in state social services. Key architects of this policy included then-Rep. Arlene Wohlgemuth (R-Burleson), Health and Human Services Commissioner Albert Hawkins and Hawkins' deputy Gregg Phillips. Bizarrely Hawkins made Phillips his privatization point man, despite the fact that the state of Mississippi previously had chastised Phillips for handing out an $875,000 contract as that state's human-services czar and then going to work for the company to whom he awarded this contract. Recently the Dallas Morning News discovered that Wohlgemuth - now a lobbyist billing clients up to $700,000 a year - got House Appropriations Chair Warren Chisum to slip a provision into this year's Texas budget bill that sought to steer a major Medicaid-fraud contract to none other than Gregg Phillips. Asked about the appropriateness of inserting such a provision on behalf of a lobbyist, Chisum said lobbyists are the source of "all our" legislative language. Touché.

This may explain how taxpayers have been repeatedly fleeced in the state's recent efforts to privatize social services. In 2004, for example, the Texas Health and Human Services Commission (HHSC) awarded an $85 million contract to manage HHSC employee-administration functions such as its payroll. Yet Texas awarded this contract to Ohio-based Convergys, which already was bungling a similar contract in Florida. HHSC claimed that awarding this contract to a company with a poor track record would save taxpayers $63 million. A 2005 state audit found that HHSC fudged these estimates and the contract that had yet to save the state a dime.

In a Texas-sized blunder, the state has spent a half billion dollars overhauling the way it handles enrollment and eligibility in human-service programs such as Medicaid and children's health insurance. Texas hired Deloitte Consulting in 2001 to develop a massive new computer system to streamline this task. Four years later, the state awarded the largest contract in Texas history to an Accenture-led team to run the new computer system and eligibility call centers. Yet the call centers and the new computer system failed a trial run so badly that the state abruptly cancelled the contract and - $500 million later - state workers went back to processing claims with the old computer system.

In 2007 the state expanded a Houston program that delivers Medicaid services through private HMOs to three new metropolitan areas. Things got off to a rocky start in Austin and San Antonio. HHSC suspended UnitedHealth's Evercare unit from enrolling new patients in the capital area after it failed to provide its existing clients with doctors. The agency next suspended Amerigroup enrollments in San Antonio after that HMO also failed to meet its contractual obligations.

In a $19 million solution looking for a problem, the state hired a French finger-printing company in 1996 to crack-down on food-stamp fraud. The contract's chief defect was that there was little evidence of such fraud in the first place. According to a 2003 internal memo, for example, the state has spent $12 million on finger printing to prevent $59,000 worth of fraud. Instead of scaling back or terminating this contract, the state expanded it in 2004.

Next time Austin's well-paid lobbyists come peddling a privatization scheme as a sure way to save taxpayers a fortune, Texas officials could save a lot more by exercising a bit of skepticism. To avoid getting fleeced by private contractors, HHSC needs to stop paying contracts to solve phantom problems. It must fairly and independently evaluate competitive bids and refuse to award contracts to companies that have a reputation for failure. When contractors do fail, HHSC must quickly impose penalties or terminate contracts. Above all, the agency should award fewer and smaller privatization contracts until it has established its own track record for saving - rather than squandering - taxpayer money.

Reinlie is the director of the "Watch Your Assets" project of Austin-based Texans for Public Justice.